Summary: the Worldwide broadband access market has the potential to grow to $416bn by 2020, if operators embrace the “Happy Pipe” concept. Headline forecasts and analysis from the Telco 2.0 Strategy Report “Mobile, Fixed and Wholesale Broadband Business Models: Best Practice Innovation, ‘Telco 2.0' Opportunities, Forecasts and Future Scenarios”. (June 2010, Executive Briefing Service, Future Networks stream)

Key Point Summary

• The global broadband access market is forecast to increase from $274bn in 2010, to $416bn in 2020, an increase of 52% in revenue terms.
• More than half the revenue growth will come from wholesale and “two-sided” fees for improved access capacity and quality.
• By 2020, mobile broadband will be worth $138bn, or 32% of the total broadband industry revenues.
• Three new revenue streams are identified: “Bulk Wholesale”, “Comes with data”, “Slice and Dice”.
• New ‘upstream’ customers are forecast to generate over $90 billion in broadband revenues globally by 2020

Full details of the report can be found here, and a PDF of this document can be downloaded here.

This article summarises: the headline Global Broadband Access forecasts; the 'Happy Pipe' scenario; three important new broadband business models; and the c.$90Bn contribution of 'upstream' customers.

Overview: Growth will force hard decisions

Both fixed and mobile broadband markets will continue growing in revenues, but operators face some hard decisions about future business models, according to the Telco 2.0 Initiative’s Strategy Report “Mobile, Fixed and Wholesale Broadband Business Models: Best Practice Innovation, ‘Telco 2.0' Opportunities, Forecasts and Future Scenarios”. The report finds that telecom operators can benefit from both new types of broadband wholesale and more sophisticated direct-to-consumer retail propositions and tariffs. Recent moves to introduce tiered and capped wireless Internet data plans is early evidence of this trend.

Global Broadband Access: $416Bn by 2020

Overall, the global broadband access market is forecast to increase from $274bn in 2010, to $416bn in 2020, an increase of 52% in revenue terms, despite continued price pressures in both fixed and mobile domains.

Figure 1 – 2020 Global Broadband Revenues Forecast

More than half the revenue growth comes from wholesale and “two-sided” fees for improved access capacity and quality. By 2020, mobile broadband will be worth $138bn, or 32% of the total broadband industry revenues.

It is possible to be a “Happy Pipe”

Today, many operators fear the supposed risks of becoming “dumb pipes”, but the study suggests the forecast market value means the term “happy pipe” is more appropriate for some. Certain telecom carriers will be able to add further value through enhanced “Telco 2.0” services and platforms, but it is important to note that the basic carriage of data can itself be profitable and a source of substantial growth.

Telco 2.0 envisages broadband service providers (BSPs) falling into four strategic groups in the next 5-10 years (for more on this, please see the Four Strategy Scenarios for Mobile & Fixed Broadband Business Models):

1. Telco 2.0 Broadband Player. A mix of enhanced retail and a platform strategy consisting of wholesale distribution and a suite of network-based value-added services;
2. Happy Piper. Focus on retail or wholesale connectivity to upstream and/or downstream customers rather than on higher-level (value-added) services;
3. Government Department. Covers an array of modus operandi in which the common theme is the high degree of influence or control exerted by the state on the broadband service provider;
4. Device Specialist. The broadband service provider seeks to control the interface between end user (consumer or enterprise customer) and upstream suppliers by managing the device and/or operating system via which services are delivered.

On the conventional retail broadband side, the big winners are fibre-based fixed services and mobile data for smartphones. ADSL and cable revenues will peak in mid-decade, and then decline with substitution from the progressive deployment of fibre. PC-based mobile broadband retail revenues will grow strongly in the short term, before being impacted by price competition and a shift from user-paid retail subscriptions to new wholesale-enabled models.

Three Important New Broadband Business Models

The report predicts that the wholesale market for broadband will evolve in three separate directions:

• “Bulk wholesale” is an evolution of today's approach to MVNOs and data roaming in mobile, or loop-unbundling and open fibre access in fixed markets. The report predicts an acceleration of this type of wholesale provision, as governments force greater openness on telecoms licensees, and operators look to alternative partnerships to supply new market niches with capacity. There is also a possibility for parties other than the end-user to pick up the bill for subscriptions – for example, some local authorities are now providing free broadband to disadvantaged communities.
• “Comes with data” business models have started to emerge recently, with devices such as the Amazon Kindle. Here, a product vendor or service provider contracts for data capacity with broadband provider, and bundles it in a combined offer – the user does not have a subscription or direct relationship with the telco. The report expects this approach to be important for laptops, netbooks, tablets and various other new device categories.
• “Slice and dice” wholesale is more complex, and more controversial. This involves operators selling data capacity in fine-grained “parcels” to parties other than the user, who is typically also paying for some level of access. This type of “two-sided” business model could involve deals with device vendors for inclusion of data in bundled M2M offers, or to content/application providers where they pick up the bill for data transmission rather than the end-user.

The incremental revenue opportunity for new “slice and dice” wholesale business models in mobile broadband alone is forecast to be $21bn worldwide by 2020.

‘Upstream’ Customers worth $90Bn by 2020

According to Chris Barraclough, co-author of the report and Managing Director of Telco 2.0, “Telco 2.0 is not about throwing away existing operator business models, but about evolving them to generate additional value. In new Telco 2.0 style ‘two-sided’ business models, there are ‘upstream’ and ‘downstream’ customers – upstream customers are typically enterprises or merchants seeking to reach their markets – the so-called ‘downstream’ customers.”

Figure 3 – Upstream and Downstream Customers in the ‘Two-Sided’ Telecoms Business Model

“As we show in this report, there are many creative ways that operators can add more value for existing downstream customers. However, it is also clear that those companies providing services over the internet will increasingly seek to mash-up connectivity more tightly with their own offerings, for example by including connectivity as a part of their products. These new ‘upstream’ customers are alone forecast to generate over $90 billion in broadband revenues globally by 2020.”

The report’s co-author and founder of Disruptive Analysis, Dean Bubley, said “Both fixed and mobile operators need to look beyond the traditional ‘end user subscription mindset’, and examine new and innovative wholesale opportunities. At the same time, they need to embrace radical evolution of their retail portfolios – for example, supporting prepaid fixed broadband, or offering innovative tiering and policy structures for mobile Internet access from smartphones and tablets. Whoever coined the term ‘dumb pipe’ has cost the industry billions in shareholder value”.

For further details or to order the report “Mobile, Fixed and Wholesale Broadband Business Models: Best Practice Innovation, ‘Telco 2.0' Opportunities, Forecasts and Future Scenarios” please see here , email , or call +44 (0) 207 247 5003.